AN INDEPENDENT PROXY ADVISORY firm yesterday recommended Crown Central Petroleum Corp. shareholders vote against a merger between Crown and a holding company that controls a large number of the refiner's shares.

Shareholders are to vote Thursday on whether Crown should merge with Rosemore Inc. Both Crown and Rosemore are controlled by Henry A. Rosenberg Jr.

Rosemore is offering $9.50 a share for all the outstanding stock it doesn't already own. Apex Oil Co. of St. Louis has put in a competing bid of $10.50 a share.

"The overriding factor in our decision is our belief that the Crown board and independent committee did not adequately pursue all alternative proposals and expressions of interest, including the bid set forth by Apex," said the report by Institutional Shareholder Services, which provides guidance to institutional investors and mutual funds.

"These concerns are heightened by the independent committee's failure to require that a management-led buyout be put to a majority vote of unaffiliated shareholders, especially when the buyout group controls over 45 percent of the company's voting power."

Through Rosemore, Rosenberg and his family own 49 percent of Crown's Class A shares and 11 percent of its Class B shares, which have one-tenth the voting power of Class A. The Rosenberg family controls a little more than 45 percent of the votes.

Two-thirds of all votes must be cast in favor of the Rosemore merger for it to succeed.

The "most obvious flaw" in the Rosemore merger, the report said, is that it does not require approval from a majority of non-Rosemore shareholders "as sound corporate governance would dictate."

"Since Rosemore already owns 45.4 percent of Crown's total voting power, it only needs an additional 21.3 percent of the votes to approve the transaction, or 39 percent of the votes that it does not control," the report said.

A spokesman for Crown said the company was "disappointed" in the report.

"We had hoped they would share the independent committee's conclusion that the Rosemore merger is in the best interest of shareholders," said J. Steven Wise.

He said the fact that Crown has been pursuing a merger or acquisition partner since February 1999 shows that all proposals were adequately pursued. Wise also noted that its investment adviser, Credit Suisse First Boston, had concluded that the Rosemore merger was fair to all shareholders.

Crown's independent board of directors - which includes everyone on the board except Rosenberg - has said it recommended the Rosemore deal because the Apex offer has too many contingencies and because Apex's proposal could not be completed without Rosemore's approval.

Rosemore, which has provided millions of dollars in financing for Crown, threatened to pull that support if its merger offer is defeated, according to a filing with the Securities and Exchange Commission.

"The independent committee contends that Apex's financing letter was too conditional to be taken seriously," the report said, "but, as ISS confirmed with Crown management, the independent committee never made an attempt to contact Apex's lenders to investigate the financing, as it was invited to do by Apex."

Crown, which has posted losses in eight of the past 11 years, employs about 180 people in Baltimore and an additional 2,700 nationwide. Its Class B shares closed at $9.125 yesterday, down 12.5 cents.

Originally published on Aug 18, 2000